American Exceptionalism is driving the dollar stronger in the second half of the year, putting pressure on the global economy.

The dollar strengthened in the second half of the year as investors maintained confidence in the concept of American Exceptionalism, driven by a strong US economy, investment trends in AI, and the prospect of the Fed maintaining or further raising interest rates.

On June 26, 2026, at 11:10 AM, Reuters reported that the US dollar is entering the second half of 2026 with strong momentum, driven by expectations that the Federal Reserve (Fed) may raise interest rates further, coupled with continued capital inflows into US assets amid confidence in the concept of "American Exceptionalism," which is putting pressure on other currencies worldwide.

The dollar strengthened by about 3% in the first half of the year, making it the best-performing currency. This contrasts sharply with the same period last year, when the dollar weakened by more than 10%, its sharpest first-half decline since the early 1970s due to uncertainty surrounding U.S. tariffs.

While the prospect of a ceasefire between Iran and Israel would ease pressure on energy prices and inflation risks, the continued strength of the U.S. economy, particularly growth driven by artificial intelligence (AI) investment, leads investors to believe that the Fed is more likely to raise interest rates than cut them.

Meanwhile, the tight monetary policy stance of new Fed chairman Kevin Warsh continues to prioritize controlling inflation, which remains above the 2% target. This has led the market to expect the Fed to raise interest rates at least once this year, with approximately a 50% chance of another hike.

As a result of these expectations, the dollar strengthened to its highest level in over 40 years against the yen and moved near its highest level of the year against the euro.

Stephen Jane, CEO and Chief Investment Officer of Eurizon SLJ Asset Management, stated that while a strong dollar is not beneficial to many countries, including the United States, US assets and businesses remain highly attractive. This leads to continued foreign investment in the US, a key factor supporting the dollar's value.

The strengthening dollar is putting pressure on policymakers worldwide, from New Zealand to Switzerland, as a weaker currency increases the cost of importing goods. Even though energy prices have fallen, the costs of food, travel, and services remain high.

In Asia, the South Korean won plunged to a record low, as several emerging economies, such as India, had to intervene in their currency markets or raise interest rates to curb pressure from a stronger dollar.

Data from the U.S. Commodity Futures Trading Commission (CFTC) indicates that speculative investors increased their net long positions in the dollar by approximately $30,000 billion, the highest level since the start of President Donald Trump's second term and the fastest half-year increase in long positions since the CFTC began collecting data in 2555.

Joseph Pertel, a fund manager at Neuberger, believes that in the short term, the dollar has the potential to strengthen further due to rising real interest rates in the United States, even though long-term concerns about the US government's fiscal position remain.

US economic data has continued to exceed expectations since April, and corporate earnings have also been stronger than anticipated. As a result, Morgan Stanley estimates that if the market continues to focus on the Fed's tight monetary policy, the euro could weaken to around $1.10 in the short term, from its current level of approximately $1.135.

Furthermore, the trend of investment in AI and large IPOs, especially SpaceX, continues to attract capital into the US stock market. Bank of America estimates that since the beginning of the year, more than $341,000 billion has flowed into the US stock market, a significant increase from $134,000 billion during the same period last year.

Analysts believe the United States continues to benefit from being a hub for large technology companies investing in AI-powered data centers, as well as a base for leading quantum computing companies, resulting in a continued inflow of global capital into the US.

Mabrooke Chetuan, Head of Market Strategy at Natixis Investment Management, stated that future economic growth will depend on technological capabilities, computing power, energy, and labor, and that the United States is the most prepared and therefore will continue to be the biggest beneficiary of this transformation, adding that "the winner takes it all."

Reference: reuters.com

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